Blood for Oil

The point is to enforce a certain set of middlemen (Euro/American petrogiants). The end cost to the consumer is of little concern to these middlemen.

While I appreciate the sentiment, the math is a little fuzzy. If the difference between the price of a barrel of crude with U.S. intervention and the price without is $38 per barrel ($100 minus $62 using the numbers in the example), the annual difference in dollars spent by the American public assuming no reduction in consumption (at 7.3 billion barrels a year) is $277.4 billion. We do not appropriate $277.4 billion a year to fight the Iraq war.

Now, you might also say that the costs of the Iraq War exceed simple appropriations - and you would be right. The deaths and non-fatal casualties in the military, contractor and civilian populations certainly have a price as well. Perhaps the greater point is that appropriations plus all other losses exceeds the $277.4 billion in savings that US intervention ostensibly brings. Probably - but there is room for debate on that point.

Matt, you're missing the fact that non-opec production (North Sea, Mexico, North America, etc.) is plummeting precipitously. The only non-opec suppliers of any significance that have recently been increasing production are Nigeria and Russia. Neither one of these is exactly confidence inspiring as a long term partner/supplier for the U.S. Large permanent bases in Iraq, however, will guarantee a spot at the table for us with Saudi Arabia, Iran, as well as Iraq for a long time to come. The value of that position could be considerably higher than our current "investment" (hat tip: Condi) 10 or 20 years from now.

I hasten to add that I find the cynicism of Cheney's positioning in this regard to be abhorrent and likely to backfire on us bigtime, but I don't think you can dismiss the "it's about the oil" argument so easily.

Also, since Gulf War I, Iraq's production capacity has been a lot less than it could have been given normal development conditions and that trend has only accelerated in the past few years. Iraq could probably ramp up to 4 or 5 million barrels a day (half S.A.'s output) within a couple of years of the advent of stability.

Finally, if some of the money wasted on the war had been diverted to subsidizing increased efficiency domestically (perhaps in the form of handouts to the big three to help dramatically raise CAFE standards) we would be in even better shape than we will be even if we do get to exercise our "future option" on Iraqi oil sometime down the road.

The funny part is how the prevailing political correctness obliges conservatives to argue that the Iraq invasion had absolutely nothing whatsoever to do with oil.

I don't think the conquest and occupation of Iraq can be turned into a NPV calculation. Even if you could construct such a calculation, it wouldn't include $20 billion annual cash flows--that money would have to remain mostly in Iraq for Iraqis, right? We couldn't just steal it.

But if you did look at it like a big NPV projection, it would probably have been looked at a lot like a capital intensive project, like building a power plant. A huge portion of your costs are upfront, and your revenues are then relatively stable for a number of years (then there is often a jump in costs for the last year when the plant is shut down--or when the last American bases in Iraq are closed). The problem with huge capital projects is that it is so often impossible to accurately forecast the capital expenditures at the beginning.

In a way, that's what happened here--they thought the big costs would be in the 1st year, and after that there would be an annual cost of maintaining a relatively small troup presence, but it would be vastly outweighed by the decades of future revenue (or more generally benefits) that would accrue. Not in their worst nightmares did the planners of this ware expect they would be spending $170 billion in 2007 (not to mention the costs that are incurred but not booked--depreciation of the personnel and equipment of the military in particular).

Bad business plan all around. MY B-school professors would have given them a D at best.

cui bono?

The argument holds really well if one considers the simplistic imperialist hypothesis, that is the idea that America invaded in order to make money off of oil.

But oil is important, because America -as the rest of the world should- cares deeply about who controls the totality of middle east oil. I haven't looked at the specifics, but a country which would occupy both Iraqi AND Kuwaiti AND Saudi oil would control something like what... 40-50% of world oil production, which would in turn give this country an unprecedented power to control oil prices, while becoming a regional superpower.

I don't think that this is a scenario that anyone in the west wants happening.

Matt is also not counting indirect oil costs. The computers and shoes from Asia will cost at least 50% more at $100 a barrel for oil.

matt, I would expect better from you.

It is not about the economic value of the oil, but about control of the oil source, used as a strategic leverage against potential rivals (i.e. China, India, Europe).

That is Geopolitics 101. That is why the US will never, ever, under any circumstance, shift away from the policy of maintaining military presence in the region.

Re: If the difference between the price of a barrel of crude with U.S. intervention and the price without is $38 per barrel ($100 minus $62 using the numbers in the example)

Ironically, the price of oil is greater WITH US intervention. Some estimates claim about a third of the current price of oil is due to the insecurity introduced in the Middle East by America's hamfisted military presence.

I've heard various policy folks from different administrations say quite plainly that it would be an abandonment of duty not to consider the nation's oil supply.

Also, the money isn't going down an utter rat-hole. Some portion of the expenditures are still going into the US economy in the form of wages to soldiers, contracts to weapons makers, increased business for funeral homes and prosthetics manufacturers, etc.

That's still a lot of money for the "wrong" person to (mis)use.

And the Middle East is about the last board the Churchill wannabes can move their toy soldiers around...without it, people might begin to think that conventional forces are...pointless.

Can't have that.

Nick Kaufman and econBras have hit on the missing strategic interests. We could leave the Middle East and with our Navy still deprive most strategic competitors from importing oil. But it would be harder to prevent Middle Easterners from doing the same to us, and leave open a void for Russia, China, or even Europe to fill and influence oil supply. Economic issues aside, to some extent we go to war with the Middle East so that the Middle East or other powers interfering there can't someday keep us from going to war somewhere else that matters more directly to our security or ideological interests, like Europe, Japan, or Taiwan. Hell, even significant pressure could be put on US policy options in the Americas by a united super oil state or pervasive proxy control by China/Russia.

Um..., that was a joke, right?

Yes, I second Dylan's comments and EconBras as well.

What I find so odd is that, as was pointed out earlier, it is politically incorrect for conservatives to acknowledge the war is 'about oil'. While I'm so used to this happening with right wing talking points, I think this is an instance of a liberal soundbite curtailing honest debate.

Look, nobody wants us to halt out reliance on fossil fuels more than me. But I can certainly admit that we aren't there yet, and we won't be anytime soon. Until the day comes when oil returns to its former status as a messy nuisance, let's just face the facts: America's power and even survival are derivative of our ability to procure oil and, in turn, fuel our industry. This is not some economic phenomenon that is peculiar to the Japanese or Germans in WW2; oil is every bit as relevant and vital to this -and every other- nation as ever.

If we can face that as truth, if we recognize this as a real and quite legitimate national problem, then we can conduct an honest search for solutions. Maybe it will turn out that the best course of action is to invade oil-laden nations....(but i kinda doubt it)

One thing I don't really understand is the sentiment that America's military posture in the Middle East is somehow justified or at minimum caused by that region's large oil reserves.

I understand the sentiment perfectly well. In addition to the innumeracy you cite, it's derived from a crude, crypto leftist misunderstanding of the workings of the global economy, and a failure to appreciate the ramifications of the fungibility of oil (not the mention the fungibility of capital).

If American foreign policy were dictated by oil companies in the manner widely believed, stability in the Middle East would be paramount. For starters, the US would have found a mutually face-saving way to bring Saddam Hussein's regime in from the cold (a far more sensible course of action than invading). And Washington would long ago have reached a rapprochement with Tehran. It is likely, too, that the US would by now have taken up the cause of Palestinian statehood with ostentatious vigor. In short, American Middle East policy would look a lot more like something crafted in Brussels.

For starters, the US would have found a mutually face-saving way to bring Saddam Hussein's regime in from the cold . . .

Why would American oil companies want that? Saddam would have frozen them out, selling Iraq's oil through European and Japanese companies. For U.S. oil companies it's better that Iraq's oil stay in the ground for the time being. It's interesting that what's now happening is fairly close to that.

I think you are doing the accounting wrong. Think of it from an oil executive's perspective. Our oil companies had no rights to the Iraqi reserves before the invasion. The leases were held by TotalFinaElf and Yukos primarily. But if someone else, like the US government, were to invade and make those contracts invalid, then we(ExxonMobil) might be able to get those contracts. And the cost to us will be nothing because the US government will borrow the money and we will not have to pay higher taxes for another 20 years. And those higher taxes we will pay will be much lower than the potential profits from the oil. So we (ExxonMobil) win. All we have to do is funnel a lot of money into the campaigns of people who will vote to approve this action. So, the cost/ benefit analysis should look like this: how much in campaign donations produces how much profits. The citizens, of course, will pay through the teeth. But as long as they can be fooled into voting the right way, then ExxonMobil will be making a very good investment. And their strategy has worked well. Look at it now, their stock has done great without even getting the leases. They have profited simply by destabilizing the market. And it cost less than one hundred million in donations to achieve billions in extra profits. Not a bad investment.

...a crude, crypto leftist misunderstanding of the workings of the global economy...Middle East policy would look a lot more like something crafted in Brussels...

Oh, that's better...a crypto rightist misunderstanding of market rationality. Also, what is paramount for American oil companies in the middle east is not stability, but access.

I understand the sentiment perfectly well. In addition to the innumeracy you cite, it's derived from a crude, crypto leftist misunderstanding of the workings of the global economy, and a failure to appreciate the ramifications of the fungibility of oil (not the mention the fungibility of capital).

Apparently, the administration is as many conservatives feared crewed by the crypto-left as Powell's former chief of staff reported “We had a discussion in (the State Department’s Office of) Policy Planning about actually mounting an operation to take the oilfields of the Middle East, internationalize them, put them under some sort of U.N. trusteeship and administer the revenues and the oil accordingly,” Wilkerson said. “That’s how serious we thought about it.”

It's an idea I believe dates back to Walter Laqueur in the early 80's and has been repeated by nearly every conservative middle-east hawk of note. THAT'S how far the conspiracy goes.

C'mon guys, nothing you say can be true because oil is fungible. Don't you know that!

Not the mention capital.

Nobody has mentioned that Iraq has 11 percent of the world's proven oil reserves, second to Saudi Arabia. And it's cheap to get out of the ground, or at least it will be once Iraq settles out.

Remember, too, that Bush, Cheney, et al. never thought that the Iraqis would actually object to being occupied.

Do you recall back when Sarajevo was under siege and nobody in the west was doing anything? I read a comment from a resident to the effect that it was too bad that there was no oil under the city, because then the Americans would come in and take over.

He wasn't wrong.

"Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world's economy. The Gulf War was a reflection of that reality."

Dick Cheney, Speech before the Institute of Petroleum Autumn Lunch, 1999:

http://www.energybulletin.net/559.html

Oil is plenty fungible... as an entire market. In peacetime.

Oil profits are not fungible in the slightest. Money made from selling oil by Royal Shell is money not made by Exxon.

Oil is not fungible at all during wartime -- just ask any member of the Japanese air force, circa 1946.

Oil industry lobbyists work to maximize the profits of their individual employers, not the market as a whole.

Military strategists plan for wars, not lasting peace.

I'm surprised this even needs pointing out.

What a lot of other commenters have said; it's about strategic control, not acquisition of the product. It's about who gets to do the development and on what terms. U.S. and U.K. oil co's didn't care for the 'stability' that shut them out of Iraq production in favor of French and Russian firms. Weak, fragmented states are the kinds of countries that sign the Production Sharing Agreements that restore the pre-OPEC relationship in which the oil majors were in the driver's seat.

Oil companies didn't necessarily drive the invasion policy, but they influenced it. Anyone arguing they didn't is helped by the coverup of Cheney's energy task force logs and minutes. Cheney and Rumsfeld came into office fully intending to invade Iraq, though, and it wasn't only about oil, by any means.

But notice how the Iraq Study Group treated the subject. The situation is FUBAR, but their recommendations are built around trying to salvage U.S. oil majors' interests. During 'ISG week', there was actually mention in the papers of Iraq's still-not-completed petroleum law, a story which up until this month has been covered only in the industry. I expect it to disappear completely from sight again now...

Our ruling clique's dishonesty about strategic objectives of the invasion and occupation, and the effort to marginalize any discussion of oil's role (enforced by press silence and pundit dismissal), have allowed several wrong-headed oil analyses to get more traction than they should. This gives commentators enforcing the 'oil rationales are a fiction of the craaazy left' line convenient straw men to bash.

Matt, engaging the points put forward by your commenters could keep you from being considered one of those less-than-honorable pundits.

A friend of mine who served in Iraq for a while claimed that agriculture (dates!) could make about as much money for Iraq as oil. No idea if this is true, it might be worth following up.

Dates? Look at the other nations in the world whose national product is primarily produce: Bangladesh, anyone? You cannot achieve prosperity in the modern world that way, though I suppose you could get by with a small population and a very good soil, climate, and water supply. Iraq, of course, has a very lousy water supply and, as a consequence, poor topsoil. Just having been in Iraq doesn't mean you understand the economics.

I'm glad we have finally gotten to the point that we can discuss the role of oil in this fight without people bleating on about "conspiracy theory" and with only the dogmatic rightists utterly pooh-poohing the relevance.

But Cheney and Bush cannot simply divert tax money into their cronies hands. They need to launder it somehow, and since they are in the oil business, this seems a natural fit.

The point being that the benefit to the American people is far down on the list of concerns for the Bush administration policy makers. Maintaining a system where where their friends can control the gateways to American consumption of oil is a much higher priority. I highly doubt that Iraq has turned out exactly as Bush had hoped, but I imagine it is invaluable for American oil men to have the seed planted in their middle eastern partners that effing with their interests just might cause the US Marines to get all up in yer busniess.

Look at the other nations in the world whose national product is primarily produce: Bangladesh, anyone?

I think New Zealand has done fairly well exporting agricultural products.

Iraq would probably do better if they banned oil production. Dates production is harder to monopolize, and so less likely to be fought over.

Just because their plan was stupid, doesn't mean it wasn't the plan. Remember, this thing was supposed to pay for itself (a pony would deliver the rebates in a golden bucket?)

It is oversimplifying matters to claim oil is the only cause of the current war. But it is also profoundly ignorant (or dishonest) to claim oil plays no role.

Prior to 9/11 the US policy in the Middle East had three objectives:
- maintain secure access to oil
- protect our allies, most notably Israel
- prevent any hegemonic power (external such as Russia or China, or internal such as Iraq or Iran) from rivaling US influence (this objective cannot be separated from the first one)

After 9/11 we can add Cheney's one percent doctrine into the mix so that we must prevent any rogue regime from passing WMD's to a non-state actor.

It would be helpful in this debate to distinguish between control of oil and access to oil. The former is not a part of the US energy security strategy. It is, however, a part of China's strategy (see Angola as an example). The US simply wants to guarantee that oil flows to the global markets.

If Iraq were to have built up its WMD arsenal, it would have been in a position to pursue an aggressive, expansionist policy towards its neighbors. Between 50 and 60 percent of the world's proven oil reserves are in the Gulf. US policy must prevent any single power from controlling these reserves since we would then be at their mercy.

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